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Generation rent

The buy-to-let market continues to fire on all cylinders as a scarcity of attractive mortgage deals means people are choosing to rent rather than buy. Research from Halifax reveals the ongoing strength of the BTL sector and the emergence of a new generation of renters.

Although 77 per cent of non-homeowners still aspire to owning their own property, almost half of 20 to 45-year-olds say the UK is becoming more like Europe, where renting is seen as the norm, and predict that we are becoming a nation of renters.

The private rental sector is buoyant and the number of new tenants registering for rental accommodation grew by 20 per cent in May, a 28 per cent increase compared with May 2010. The number of homeowners considering placing their property on the rental market was up by 15.5 per cent in May compared with the previous month, according to estate agents Countrywide.

The first-time buyer sector may not be able to match the considerable growth in BTL over the coming years. Given most people have the majority of their wealth tied up in property, this could have a significant impact on how savings are accumulated and managed.

Although there are 90 per cent loan-to-value mortgages to be had, they are in short supply and are not meeting demand. This is indirectly propping up the rental sector, especially at the FTB end of the market.

This presents proactive brokers with an opportunity to target BTL investors. Cash-rich entrepreneurs are seeing an opportunity to move their money into bricks and mortar over the medium to long term and are looking to leverage their investment as much as possible.

This is hardly surprising when returns on cash invested in the banks are so poor and property prices so low while rental returns of 5 to 6 per cent are easily achievable in many areas.

Strong demand is allowing landlords to increase rents and 49 per cent of tenants predict rents will be higher a year from now. One in seven expects rental inflation to be above 10 per cent over this period and with the average rent now standing at just under £700 a month, this would add an extra £70 a month to rental payments.

If investors are willing to accept the value of their property may slide in the short term and ensure it meets the criteria of at least 75 to 80 per cent LTV, returning 125 per cent of monthly mortgage payments, it can continue to be a good long-term investment.

I cannot see property prices falling significantly from today’s levels, meaning BTL has got to be a relatively safe option as part of a balanced portfolio.

What really interests me is the emergence of a cultural shift. It has been on the horizon for a few years now but finally ’generation rent’ is here to stay. This will have a significant impact on the make-up of the housing and mortgage market and will present us all with additional opportunities. Investors who act fast and decisively will be well positioned to reap the rewards.

Sally Laker is managing director of Mortgage Intelligence and Mortgage Next

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